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Chevron Priming Permian Pump in 2017

The Permian Basin will be Chevron Corp.'s No. 1 U.S. target in 2017, as the supermajor moves more of its worldwide capital spending to high-return, short-cycle projects.

The San Ramon, CA-based operator late Wednesday unveiled its spending plans for the coming year, with $19.8 billion total for capital and exploratory investments, including $4.7 billion by affiliates.

Total upstream spending is pegged at $17.3 billion, with $5.7 billion directed to the United States. About $2.5 billion is budgeted for shale and tight investments, most of which would be for Permian development in Texas and New Mexico.

"Our spending for 2017 targets shorter-cycle time, high-return investments and completing major projects under construction," CEO John Watson said. "In fact, over 70% of our planned upstream investment program is expected to generate production within two years."

Next year's capital expenditures (capex), 15% below 2016 spending and 42% under expenditures in 2015, comes as the outlay for expensive overseas projects is completed. The 2017 budget is the fourth year in a row that Chevron has reduced its capex, Watson said.

"Construction is nearing completion on several major capital projects, which are now online or expected to come online in the next few quarters," he said. "This combination of lower spending and growth in production revenues supports our overall objective of becoming cash balanced in 2017."

During 3Q2016, the Permian alone contributed a 50,000 b/d increase to Chevron's production. By the end of 2020, Chevron's Permian shale and tight production is expected to reach 250,000-350,000 boe/d.

Chevron has close to two million net acres in West Texas and New Mexico, and it was running eight rigs across its operated leasehold at the end of September. Plans were to raise two more rigs before year's end. Another 10 rigs were drilling nonoperated development at the end of the third quarter.

Next year's upstream capex includes about $7 billion for major capital projects, with $2 billion to complete the Gorgon and Wheatstone liquefied natural gas export facilities in Australia. Another $3 billion is for affiliate expenditures associated with the Future Growth Project-Wellhead Pressure Management Project at the Tengiz field in Kazakhstan.

Global exploration funding accounts for $1 billion of the total upstream budget, with the remainder primarily related to early stage projects supporting potential development opportunities.

The downstream capex budget overall is set at $2.2 billion for 2017, with nearly all ($1.6 billion) for U.S. operations.

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